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June 4, 2012

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Winners & Losers: Under-Demand

It was a rough week for MLPs, especially MLPs dealing with propane (not to be confused with propane MLPs).  This time propane is causing pain not for retail distribution MLPs, but gathering and processing MLPs.  NGLs in general took a dive last week and have fallen off a cliff so far in 2012.  Ethane took the biggest hit this week (Mt. Belvieu purity ethane spot price down 22.4% week over week, -62.7% YTD), but Mt. Belvieu purity propane spot price was right there, down 15% week over week, and -48.6% YTD.  EIA NGL production volume data indicate that some ethane rejection is happening, but not enough I guess.
Ethane year over year chart:

LTM Propane Spot Price Chart:

You can see that until recently propane had held up better than ethane, but that changed in early May.  A few months ago, I called some of this price action, but that thesis was tied to over supply, not under-demand.  This week was a case of under-demand for anything risky in the market, but also under-demand of the global economy generally.  European mess and China’s slowing pace are not helping demand for stocks and demand for commodities.
Anyway, below are your weekly top 5 and bottom 5 performers in the MLP space.  In the week over week charts, I use price change, but in the year to date, this week I’ve switched over to total return for all comparisons (thank you Bloomberg terminal).
This Week
Everything was down by a lot, except gold and treasuries, which as my friend Eric Janszen of will tell you, has been a winning formula since 2000.  Royalty trusts, variable distribution MLPs and GPs all underperformed the MLP index this week, which is typical of a rough commodity price week.  The fertilizer names, which encompass the majority of the variable distribution MLPs, were probably beaten down on the output and demand side of their business model as opposed to the input and supply side (mostly driven by natural gas prices).  S&P 500 held up ok this week, given it’s more limited energy exposure.

I didn’t have enough positive performers to round out the top 5 this week, so Cheniere (CQP) makes the top 5 despite a negative 1.1% week.  The losers were led by E&P MLPs LRE and MCEP, but also included MWE and DPM, no doubt negatively impacted by falling NGL prices.

For the year to date, MLPs have outperformed oil and gas, but have trailed the broader markets.

LRE joins the bottom 5 YTD, displacing CPNO from last week’s list.  The top five remains the same.

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